As of 1 January 2016 Bulgaria has had a new Insurance Code (the “Code”) which implements the new capital and risk management requirements applicable to insurance and reinsurance companies under the Solvency II Directive.  The Code aims to enhance consumer protection and to create a stable, transparent and effective insurance market. In addition to the Solvency II requirements, the Code introduces the following important changes:

I. Solvency of insurance companies

  • In addition to supervising the Bulgarian insurance market, the Commission for Financial Supervision ("CFS") will have the right to implement the guidelines and recommendations of the European Insurance and Occupational Pensions Authority;
  • The CFS will also be the competent state body to address the application of the EU directives and regulations;
  • The Code introduces a new regime for: the capital requirements applicable to insurance and reinsurance companies, the method for calculating technical reserves, and new principles for investment of assets as a guarantee for their financial stability;
  • The Code provides a new and detailed regulations addressing financial requirements and the supervision at group level, which include (i) the preparation and announcement of a group solvency and financial status report, and (ii) the establishment of supervisory body boards;
  • The Code abolishes the absolute restriction against acquiring shares in an insurance or reinsurance company with borrowed financial resources;
  • Insurers that provide life insurance and are also licensed to offer "Accident" and "Illness" insurance are obliged to maintain a minimum capital equal to the sum of both the minimum capital requirements for life insurance and general insurance companies;
  • Supervision over insurance and reinsurance companies is based on a new risk approach and the supervisory bodies must adhere to this new approach;
  • The Code elaborates the requirements of insurance and reinsurance companies’ management systems;
  • The functions with respect to risk management and internal audit find new detailed regulation;
  • Each insurance/reinsurance company shall undertake a self-assessment of its risk and solvency as part of the risk management system;
  • Insurance companies must provide the CFS remote access to periodical reports. Further, the reports must contain certain information in a particular form defined by the CFS;
  • The Code strengths and increases requirements of auditors who prepare the financial reports of insurance companies.

II. Settlement of insurance claims

  • Overall, the Code generally develops the rules for settlement of insurance claims;
  • Insurers must now register each filed claim and all further documents related to such claims;
  • The Code now requires that insurance claims be filed first with the insurer and then, if not satisfied, with the court.  
  • The Code introduces new deadlines for insurance companies to respond to filed insurance claims;
  • Upon receiving a complaint from an insured, insurers must provide, in writing, the grounds for the amount of estimated compensation;
  • Insurers may only outsource the repairing of motor vehicle damages to third parties with liability insurance.

III. Distribution of insurance products

  • The Code implements more detailed regulations on the distribution of insurance products, applicable to both insurance companies and brokers;
  • The Code introduces: (i) a definition of "insurance services user";  (ii) ethical rules for insurance companies and brokers; (iii) unified requirements for the qualification of employees in insurance companies; and (iv) the obligation for organizing periodical trainings;
  • The Code implements grounds for deleting an insurance company from the Bulgarian National Bank register;
  • Insures and insurance brokers must provide insurance services' users detailed information prior to the signing of an insurance agreement, as well as during its operation;
  • The Code contains new regulations on the content of internet sites offering insurance services; Insurance brokers are:
    • obliged to notify the respective insurance company for each insurance payment received on the day of receiving it; and
    • under specific deadlines for transferring the received insurance payments to the insurance company;
  • Payments received from insurance claims now require notary certification of the signatures. Insures must explicitly notify the user of the insurance service, in writing, of the exact payment amount made to his proxy.

IV. The Insurance Agreement

  • The Code has further developed and refined the general framework of the insurance agreement by:
    • improving the regulations regarding the requisites of the insurance agreement;
    • regulating the future insurance interest in insurance agreements;
    • introducing automatic renewal of insurance agreements;
    • instituting retroactive and preliminary insurance coverage;
    • developing the regulations concerning the disclosure of circumstances in connection with the insurance risk; and
    • imposing detailed regulations of prescription periods (separate regulation with respect to liability insurances is also provided).
  • The Code contains several new legal terms/definitions, including differentiation between insuring and insured party, insurance period, etc.;
  • The code introduces the possibility of insurance at an agreed (fixed) value of the asset, which provides for a specific sum to be paid, regardless of the actual amount of damage suffered; 
  • The principles for determining compensation in the case of underinsurance have been modified;
  • The Code expands the regulations on "replacement insurance value" and on partial loss of insured property in connection with the regress claims against the author of the damages;
  • The Code develops existing regulations and introduces new regulations in relation to:
    • life insurance of third persons;
    • insurance for securing loans and bank loans;
    • insurance in favour of third persons;
    • redeeming value under insurance with saving purposes;
    • the different kinds of "Accident" insurance;
    • statutory insurance for professional liability; and
    • property which is subject to a financial lease agreement.

V. Statutory liability insurance for drivers

  • The Code extends the coverage of liability insurance for drivers. One single insurance policy will ensure coverage within the borders of Bulgaria, in the countries of the European Economic Area, as well as in the countries of the Green Card system;
  • The Code adds regulations on insurers’ obligation to deliver information to the Security Fund information centre; 
  • The Code allows automatic termination of liability insurance in the case of non-payment of the payment due;
  • The Code increases the minimum limit of liability for material and non-material damages resulting from bodily injury or death to BGN 10,000,000 for each separate insurance event;
  • The Code develops the regulations on the operation and the rights of the National Bureau of the Bulgarian Insurance Companies and of the Security Fund.

VI. Insolvency of insurance companies

  • The Security Fund acts as a syndic should an insurance company become insolvent;
  • The Code aligns the guaranteed insurance receivables in case of insolvency of a life insurance company with the amount of the guaranteed deposits of bank insolvency (an amount of up to EUR 100,000);
  • The Security Fund is prohibited from using finding if an insurance company becomes insolvent.

Darina BaltadjievaAntonia Kehayova